It is that time of year again. The 2009 USDA prospective planting report coming March 31 doesn’t have the same buzz that the 2007 and 2008 report had. I can remember a couple years ago, we were all looking at that 2007 corn number and wondered just how many corn acres would get planted in the United States. This time around we’ve had a global financial meltdown plus the ethanol gold rush is over. The guessing game has a different flavor to it this year.
Market action this past week has been nervous. For instance you are probably are still shaking your head over the nearby old crop soybean futures month actually going down on Thursday with the outer months going up. With the strike going on in Argentina soybean country and with the uncertainty of the USDA report coming March 31 that was a big surprise. So what is it going to be 86 million acres of corn and 77 million acres of soybeans? Those are the preliminary numbers from USDA a month or two ago. I expect that corn number to be lower next Tuesday.
For Canadian producers there is a lot on the line. Whether you are a wheat producer in the middle of Saskatchewan or a canola producer in Peace River country or a soybean producer near Brussels Ontario, the March 31 USDA prospective plantings report always has its surprises. Informa economics has already chimed in with 2009 corn acres at 81.419 million and soybean acres at 81.502 million. The commodity research and brokerage firm Allendale came out with their 2009 US corn number last Friday and they said 85.406 million acres. They also said that soybeans would balloon up to 80.439 million acres and wheat would decline to 57.977 million acres in 2009.
My own feeling is that there will be a lot less corn planted in the United States this spring. The problem corn has is even though Brazil and Argentina don’t really have good crops there’s a lot to feed wheat in the world which will substitute for corn. However we all know US producers like planting corn. That may mean that the corn number might not be as low as you might expect. I find that Informa number of 81.419 million acres of corn to be a little low. Their soybean number at 81.502 million acres might not be high enough. Of course it’s all a crystal ball until Tuesday morning.
As I said before, it is truly interesting to think about the economic environment we find ourselves in this year for the March 31 USDA report versus the same report in 2007 in 2008. Everybody of course wants to go back there and make the appropriate market decision again. However that cat was let out of the bag quite a few months ago. At the present time we have the United States printing money while spending it in an unprecedented fashion like never before. We also have some of the cheapest interest rates in history. Both of these factors are very positive for grain futures prices and of course planting a crop this spring. However, I still find it difficult to be bullish in an environment where we are as we continue to adjust to a once in a 70-year financial meltdown.
So maybe I’m very wrong about all of this. Maybe I should be an unabashed optimist. Take for example the budget brought down Thursday in the province of Ontario. Deep deficit spending seems to be the norm. The Ontario government is forecasting a budget deficit of 14.1 billion in our next fiscal year. They are spending about 32.5 billion dollars on infrastructure over the next two years and 700 million on skills training. And of course they are combining their provincial sales tax with the federal GST starting in July 2010. To put it in context we had been expecting a provincial deficit of $500 million for the current fiscal year. So ballooning up to 14.1 billion shows just how much the government is trying to kick start spending.
At a certain point all this spending by all the different levels of government should have an effect on aggregate demand created by society. I know we are talking about lofty and hard to grasp ideas here. However, at a certain point if all this deficit spending comes together it will probably have a huge effect on grain demand and subsequent pricing. Of course the tricky thing is to know if and when our high-priced economists are right and this all comes to fruition.
All my economics training tells me it should work. So I hope all those professors were right. However my agricultural economics professors would say there is a lot of feed wheat in the world and that is going to affect corn demand regardless of the number in the Tuesday report. Others would say China will eventually get tired of buying soybeans. Like always, it is a very fluid situation.
So let the chips fall where they may Tuesday morning when the USDA releases their magic prospective planting numbers. Keep in mind how we got here. It was a heck of a ride down. Maybe the memory of that will affect those numbers come Tuesday.